Period  4Q14/FY14

Actual vs. Expectations  BURSA’s FY14 net profit of RM198m (+15% YoY) was slightly ahead of expectations, representing 103% of our and consensus’ full-year estimates.

 The better-than-expected results came on the back of: (i) higher listing and issuer services revenue, (ii) higher market data revenue, and (iii) lower effective tax rate.

Dividends  A final DPS of 18.0 sen was declared (vs. our estimate of 16.0 sen), bringing its full-year DPS to 54.0 sen. However, if we were to strip away the 20.0 sen special dividend paid in 2Q14, it implies a payout ratio of 91%.

Key Results Highlights FY14 vs. FY13, YoY  The decent showing can be attributed to: (i) an increase in operating revenue (+7%), (ii) fall in depreciation and amortisation (D&A) charges (-28%), and (iii) lower effective tax rate of 25% (FY13: 27%).

 Operating revenue grew 7% primarily due to higher revenue from the securities market (+10%) where daily average trading value and volume rose 7% and 41%, respectively.

 Although the daily average trading volume for futures contract was 11% higher, revenue from the derivatives market came in flat (+1%) owing to lower guarantee and collateral management fees.

 Bursa Suq Al-Sila (BSAS) trading revenue accelerated by 72% given higher domestic participation.

 Listing and issuer services revenue grew 9% on the back of higher: (i) number of structured warrant listings and (ii) corporate exercises.

 Market data revenue increased by 20% thanks to introduction of new information packages and commencement of market data charges to brokers.

 In tandem with the fall in D&A expenses (-28%), BURSA’s cost-to-income ratio (CIR) fell 2ppts to 46%. This was aided by a larger income base (+6%) as well.

 The lower effective tax rate of 25% (FY13: 27%) was a result of the recognition on unrecognised deferred tax assets (DTA) previously.

4Q14 vs. 3Q14, QoQ  Typically a weak quarter, BURSA’s net profit was flat at RM53m thanks to a low effective tax rate of 21% (3Q14: 26%).

 Operating revenue declined 1% on the back of lower revenue from the securities market (-9%) where daily average trading value and volume dipped 14% and 31%, respectively.

 CIR rose 3ppts to 46% as manpower expenses spiked up by 12%.

Outlook  We believe investors (especially within the retail space) are: (i) likelier to stay on the sideline, and (ii) become more vigilant with their trading habits given the current choppy market environment.

 While foreign outflow was not rampant, foreign investors have been net sellers of Malaysian equity for the past six months. In the absence of strong price catalysts, we reckon that foreign investors may not return in a meaningful way anytime soon.

 Hence, we expect lacklustre trading activities in the securities and derivatives markets for 2015.

Change to Forecasts  After inputting the actual 2014 numbers into our model, some housekeeping adjustments were made; we nudged up our FY15E net profit by 2% to RM199m from RM196m. Furthermore, we introduce our FY16E forecasts where we expect its earnings to grow by a marginal 2% to RM203m.

Rating Maintain MARKET PERFORM  With lack of re-rating catalyst on the horizon, we expect BURSA’s share price to trade sideways.

 Furthermore, we do not expect any special dividend payout in the next two years given its depleting cash reserves. That said, it is a debt-free company.

Valuation  Following the slight upward revision in earnings, we raise our TP to RM8.40 (from RM8.30), based on an unchanged FY15 P/E of 22.5x (-0.5SD below its 5-year average P/E). This is in line with the valuation multiples of its regional peers.

Risks to Our Call  Lower-than-expected trading volume in the securities and derivatives markets.

 Deferment of key IPOs in 2015.

 Higher-than-expected opex. 

Source: Kenanga